UNITED STATES SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
RELEASE NO. 39134 / September 26, 1997
ADMINISTRATIVE RELEASE NO. 3-9440
The Commission instituted public administrative proceedings against
Kent T. Black, Joel L. Hurst, David E. Lynch, Larry E. Muller and Robert L.
McCook. The Order alleges that Hurst, Lynch and Muller, operating out of a
broker-dealer's now-defunct Houston office, engaged in a scheme to "park"
complex mortgage-backed derivative securities with other dealers in order
to move the securities off the firm's books. Further, it is alleged that
these individuals utilized this scheme to manipulate the price of the
derivative securities, thereby charging excessive markups to the firm's
customers amounting to over $1.85 million. As a result of this parking
scheme, the broker-dealer failed to maintain accurate books and records and
incurred numerous net-capital deficiencies.
The Order also alleges that Black made numerous misrepresentations and
omissions in connection with the sale of mortgage-backed derivative
securities to Escambia County, Florida. Specifically, Black failed to
disclose the risks associated with extremely highly risky and volatile
securities known as "inverse floaters" and "inverse interest onlys," which
he sold to the county. It is also alleged that Black sold certain
derivatives to Escambia County with the misrepresentation that the broker-
dealer would buy the securities back at a guaranteed profit to the county,
and that Black later refused to repurchase those securities. Escambia
County lost over $3 million on the securities purchased from Black.
The Order alleges that Black, Hurst, Lynch and Muller willfully
violated Section 17(a) of the Securities Act of 1933 and Sections 10(b) of
the Securities Exchange Act of 1934 and Rule 10b-5, thereunder.
Additionally, it alleges Hurst, Lynch, Muller and McCook willfully aided
and abetted the broker-dealer's violations of Sections 15(c) and 17(a) of
the Securities Exchange Act of 1934.
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